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International Symposium of the CIB W92 on Procurement SystemsProject Procurement for Infrastructure Construction

7-10 January, 2004, Chennai, India

Challenges on Global ProjectsAn Institutional Perspective1

Ashwin Mahalingam

PhD Candidate, Stanford University, Stanford, CA, USA, [email protected]

Prof. Raymond. E. Levitt

Professor of Civil & Environmental Engineering, Director, Collaboratory for Research on GlobalProjects, Stanford University, Stanford, CA, USA, [email protected]

Abstract

Global construction projects that involve collaboration between participants from multiplecountries result in unique challenges that are not faced on intra-national projects. Why is this so?Evidence from anecdotes and case studies suggest that institutional differences i.e. differencesin work practices, legal regulations and cultural valuescontribute to increased costs on globalprojects. This paper outlines a research agenda that will help shed light on how these institutionaldifferences lead to challenges and increase costs on global projects. Institutional theory is abranch of Organization theory that can help us understand and address some of these issues.However, there are gaps in the application of institutional theory to the problem of globalprojects. We identify some of these gaps and propose a methodology by which to gain newinsights into this phenomenon.

Keywords

Institutions, Global Projects, Ethnography, Work Practices, Culture.

1. Introduction

To re-abuse a much-quoted clich - We live in the age of globalization. Every generation canclaim to have lived in such an age. Nevertheless, there is an much higher level of global activityin todays world compared to years past. As travel becomes faster and cheaper, as languagebarriers are broken, as markets open up and as global awareness increases, there is an increasedintermingling across countries, cultures, races and religions both in the name of commerce andpleasure. On the one hand, international organizations such as the World Bank are engaged in alarge amount of economic development and re-development activity in Asia, Africa and LatinAmerica, while on the other hand, commercial enterprises in the Information technology,

Manufacturing, Construction and Tourism sectors are embarking on or have recently embarkedon projects or partnerships overseas. To obtain an idea of the magnitude of this trend, it is enoughto refer to Engineering News Record magazine, which estimates that the internationalconstruction market alone is worth $106.5 billion2.

1 This material is based upon work supported by the National Science Foundation under Grant No. IIS-9907403. Any opinions, findings, and conclusions or recommendations expressed in this material are thoseof the author(s) and do not necessarily reflect the views of the National Science Foundation.2 June 2001 issue of ENR magazine
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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With these bold ventures however, comes a new set of challenges. Economic feasibility studiesare easily done to justify an international venture. In retrospect, these seldom serve as a viableroadmap or a plan for implementation. Professionals worldwide bemoan cultural differencesthe surprising behaviors of their overseas colleagues and the ease with which schedules andbudgets are derailed. Why are global projects beset with such problems? What can we do tounderstand them better and mitigate their effects? We plan to discuss these issues in the rest of

this paper. In the next section we describe incidents that occurred on global construction projects.We define the term institutions and provide a framework that we can use to analyze ourproblem. Based on this framework, we identify a research agenda that will lead to a betterunderstanding of institutional challenges on global projects. We then review the literature oninstitutional theory and identify gaps in the application of this theory to our research questions.We then discuss our research methodology and some of the contributions that we hope to make.

2. Challenges on Global Projects

In this section, we describe three incidents that describe challenges encountered on globalprojects. The first incident relates to the construction of the New Chinese Hotel in China (Phengand Leong, 2000). This project began in the late 1980s. A joint venture was formed between the

Chinese Government and an American Engineering firm to plan and execute this project. A LosAngeles-based architect was hired to provide the architectural drawings that would then beimplemented by Chinese contractors. From the start of the construction phase, the Chinesecontractors complained that the architects drawings were lacking in detail and that detailed shop-drawings were not present. In the United States, architects are required to provide only theworking drawings. It is the contractors responsibility to create the shop drawings. In Chinahowever, the architects provide both the working drawings and the shop drawings. In the case ofthe New Chinese Hotel project, the Chinese contractors did not have the skill to produce the shopdrawings and hence could not satisfactorily complete the project. This difference in workpractices led to many disputes and conflicts. The project was finally finished two years behindschedule.

Our next anecdote deals with the construction of a factory in Sri Lanka by a Chinese contractor(Abeysekara, 2002). A Sri Lankan standard for bricks had existed for over four decades.However, this standard was not enforced and it was almost impossible to buy bricks thatconformed to this standard in Sri Lanka. The Chinese contractor had designed the structureassuming standardized brick sizes and construction methods that were normally used in theChinese construction industry. On being confronted with the actual situation of not having anystandard bricks, the Chinese contractor spent a large amount of time and money evaluatingvarious alternatives (importing bricks, manufacturing the bricks themselves) before they came tothe realization that using non-standard bricks and Sri Lankan bricklayers was probably the mostefficient way to progress.

Our last anecdote deals with an American real-estate firm that built a high-rise building inGermany.3American architects in charge of the design created a glass faade with windows that

could not be opened. Air conditioning systems were to be used to regulate the temperature. Thiswas in line with American building preferences. However, in Germany people were used to glassfaades with windows that could be opened. Air conditioning was seldom used to regulatetemperaturesa more natural approach was preferred. As a result there were heated disputesbetween the American architects and the German engineers. The German engineers refused totarnish their reputation by building an ugly building with windows that could not be opened.

3 This anecdote was generated by case study research done at Stanford University


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After much delay and dispute, the American architects yielded to the preferences of the Germancontractors.

Countless other anecdotes ranging from different safety practices to problems in dealing withbribes to fights with local labor unions abound in global projects. As the incidents described inthis section indicate, these challenges arise due to cross-national institutional differences and

would probably not be present if the project and all its participants were part of the same country.What can we make of these issues? In the next section we specify a framework that addressessome of these problems.

3. Defining Institutions

In order to specify a framework for analysis, we will first define the term institutions. Mergingconcepts generated by Greif (Greif, forthcoming) and Scott (Scott 1991), we define institutionsas a set of rules, norms and values that help generate a regularity of behavior. To take anexample, traffic regulations are an institution. They are a set of rules that generate the regularbehavior of all actors within a domain, say the country India, traveling on the left hand side ofthe road. Therefore in a certain country, there will be many sets of institutions, each of which helpto create some regularity of behavior among the denizens of that country.

3.1 Formulating the problem

So how does this relate to the problems faced on global projects? It is conceivable that institutionsspecific to different countries influence the construction industry in those countries. Theseinstitutions lead to regular patterns of behavior in these countries. These regular patterns maydiffer between countries and therefore conflicts or disputes may arise in trying to reconcile thesedifferences. In order to verify whether this formulation is plausible, we attempted to see if theanecdotal evidence that we have presented would fit our conjecture. Table 1 summarizes ouranalysis

Table 1: Institutions on Global Projects

Incident Institution Regular Behavior

New Chinese Hotel Design Practices Architects supply shop and working drawingsin China vs. only working drawings in USA

Factory in Sri Lanka Normative workmethods

Irregular bricks and bricklaying techniques inSri Lanka vs. Regular bricks in China

Glass faade on high-rise buildings

Aesthetic values forfaade design

Operable windows in Germany vs. Nonoperable windows in the USA

The first anecdote relates to the problems involving design contracts in China. The institutionsthat were an integral part of this story were the professional norms relating to design practices. In

China, these normative institutions led to a regularity of behavior where architects provided bothshop and working drawings. In the USA, the institutions relating to design practices led to aregularity of behavior where architects provided only working drawings. It was due to differencesin exactly these behaviors that led to some conflicts on this project.

In a similar vein, the second anecdote relates to a difference in work methods again a normativeinstitution in Sri Lanka, while the third anecdote relates to a difference in the institutionalizedvalues that different cultures hold with respect to the aesthetics of building faades. This thenseems to indicate that our formulation of the problem could indeed be a plausible one. We


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therefore wish to make the following claim: Problems on Global Projects arise due toinstitutional differences. Each nation and industry has a set of institutions. Institutional

instances in a society create a specific logic that leads to regularities of behavior. Differences

in the institutions or in the institutionally specified behaviors lead to problems since these

differences need to be reconciled in order for a joint activity to be successful.

4. Toward a Research Agenda

So what is it that we do not know which, if we knew, would help us better understand challengeson global projects? We propose three research questions:

1. What are some of the relevant institutions that lead to added costs on global constructionprojects?

2. How do differences in Institutionalized Behaviors between project participants affect theirbehaviors, interactions and task characteristics on projects?

3. What are the institutional costs that result?

If we could begin to answer these questions, we could then understand the dynamics behind thechallenges faced on global projects. We could then attempt to predict and find ways to mitigatethe institutional costs that result. Our next step then is to see what the academic literature has tooffer towards answering these research questions.

5. Literature Review: A Survey of Institutional Theory

In order to better understand the nature of institutions, we look at a branch of organization theoryknown as institutional theory. According to institutional theorists, a firms action is seen not as aninstrumental choice among an unlimited array of possibilities determined by purely internalarrangements, but rather as a choice among a narrowly defined set of legitimate optionsdetermined by the group of actors composing the firms organizational field. The form of thisinfluence is manifested in institutions: rules, norms and beliefs that describe and prescribe realityfor the organization, explaining what is and what is not, what can be acted upon and what cannot

(Scott, 1991). These rules, norms and beliefs are the three pillars of institutionalization thatregulate the behavior of individuals and organizations. Institutionalized behaviors once formed,are highly resistant to change (Zucker, 1977). Institutions can also be conceptualized as a game-theoretic equilibrium. In this approach, players play a repeated game (such as, say a prisonersdilemma) and reach a local Nash Equilibrium where they follow certain actions and receivecertain payoffs that may be sub optimal from a global point of view, but where no player canimprove its position by deviating unilaterally from the Nash Equilibrium. As a result, theycontinue to perform these actions with regularity, and this institution then becomes endogenousand self-regulating (Greif, forthcoming). Organizations in a particular domain will adapt in such amanner as to be competitive in the institutional environment in which they operate. Therefore, ashift in the institutional environment may imply a loss of competitiveness and efficiency (Halland Soskice, 2001).

How do organizations respond to institutional forces? Some scholars posit that organizationalisomorphism will result, wherein all organizations within an environment will display similarfeatures (DiMaggio and Powell, 1983). Other research indicates that organizations that are highlydependant on their environment and seek legitimacy will need to accept or conform to their localinstitutional environment in order to succeed. However organizations that are more self-sufficientand that do not require to be viewed as legitimate may avoid, defy or even manipulate institutionsin order to perform efficiently (Oliver, 1991). Under institutional pressure, organizations may


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also exhibit loose coupling wherein a veneer of institutional conformance is proffered (Meyerand Rowen, 1977).

Work on institutional change and conflict is still at its early stages. Some indications are thatdisruptive events are necessary to induce institutional change (Fligstein, 1991). In terms of

institutional conflict, some initial research indicates that if the institutional differences are at a

cognitive level, conflicts and resistance results, whereas differences in formal rationalities may beeasier to resolve (Townley, 2002).

5.1 Gaps in the application of institutional theory

This discussion indicates that institutions guide organizational behavior and are difficult tochange. Therefore the presence of sets of conflicting institutional beliefs may lead to challengeson projects. Institutional theory provides us with a powerful and general analytical framework for

thinking about the problems that arise on global projects. However work on institutional changeand conflict is still at its formative stages and the last word has not yet been said on these issues.There are therefore some gaps with respect to our research questions.

Firstly, projects have never been considered as a unit of analysis. Projects are short-term activities

that feature diverse teams that will disband at the end of the project. As a result there will alwaysbe a variety of institutional beliefs on projects, making them an ideal laboratory to studyinstitutional conflicts. Secondly, the construction industry has seldom been featured ininstitutional theory as the domain of analysis. Thirdly, not much work has been done indescribing the process of institutional change at a micro level.

These gaps indicate that our research questions in terms of institutional processes on globalconstruction projects have not really been addressed by the existing literature. Thus, we feel theneed to observe global projects in order to answer some of our research questions. Since we donot have a-priori hypotheses that we wish to test, we would like to pursue exploratory casestudies to inform our research.

6. Research Methodology

We have selected four projects on which we plan to conduct case studies and performcomparative analysis. The first two of these projects are railroad segments on the Taiwan HighSpeed Rail project in Taiwan. The first segment is a joint venture between a Taiwanese firm and aJapanese firm. The second segment is a joint venture between a Taiwanese firm and a Koreanfirm. The other two projects that we plan to investigate are segments of the Delhi Metro Railroadproject in India. The first of these projects is a joint venture between companies from Japan,Korea, Germany and India while the second project is a joint venture between companies fromSweden, Japan and India. We believe that these cases offer a unique opportunity to compare andcontrast various institutional effects in a controlled way. We could take a single environment, sayIndia and identify how firms from different nations react to a set of institutions. We can alsocompare how companies from a single nation react to different institutional environments bycomparing the performance of Japanese and Korean companies in Taiwan vs. India.

In terms of data collection we will rely to a great extent upon on-site interviews with projectparticipants. The interviews will be ethnographic in nature. We will not ask leading questions ortest hypotheses. We will ask the informants to tell us about the nature of their tasks as well asstories about problematic interfaces with participants from another nation. From these interviewswe will try to reconstruct the incidents that occurred on these projects. We also plan to interviewa wide variety of participantsowner representatives, contractors, designers, etc.in order to


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triangulate our stories. To a lesser extent we also plan to rely on available project documents anddirect observations made on site.

In terms of analysis, we plan to identify trends within and across these projects that relate tospecific themes, say, design norms. We then plan to identify scripts that participants follow insituations where there is a difference in institutionalized behaviors. We also plan to analyze the

difference between behaviors of participants from different countries. The themes are theinstitutions that affect construction projects and the associated behaviors are the processes bywhich institutional differences are reconciled. In terms of our results, we plan to provide detailedcase studies of each of the projects that we study. We will also be able to identify the differentinstitutions that influence global projects, how the vary by country, type of activity and how theyinfluence the behaviors of participants from different countries. By performing such analysis wehope to be able to answer the research questions that we have posed.

7. ConclusionWith this research we hope to contribute both to theory and practice. We plan to contribute toinstitutional theory by identifying at the micro-level how institutions affect projects and whathappens when conflicting institutions interact. We also plan to help managers identify issues or

institutions that they will need to consider before embarking on a global project, as well ashelping them understand the extra institutional costs that may result on global projects and howbest to mitigate them. Finally, based on our experiences in the field, we also hope to makesuggestions regarding appropriate research methodologies for this kind of research.

BibliographyAbeysekera, Vasantha. 2003. Understanding Culture in an International Construction Context.

Perspectives of Culture in Construction, CIB Publication 275: 39-51DiMaggio, Paul. J. and Walter W. Powell. 1983. The Iron Cage Revisited: Institutional Isomorphism and

Collective Rationality in Organizational Fields.American Sociological Review 48:147-60Fligstein, Neil. 1991. The Structural Transformation of American Industry: An Institutional Account of

the Causes of Diversification in the Largest Firms, 1919-1979. Pp.311-36 in The New Institutionalism

in Organizational Analysis, edited by Walter W. Powell and Paul J. DiMaggio. Chicago: University ofChicago Press.

Greif, A. Forthcoming.Institutions: Theory and History. Book Manuscript. Contracted with CambridgeUniversity Press.

Hall, Peter. A. and David Soskice. 2001. Varieties of Capitalism, the Institutional Foundations of

Comparative Advantage. Oxford: Oxford University Press.Meyer, John W. and Brian Rowen. 1977. Institutionalized Organizations: Formal Structure as Myth and

Ceremony.American Journal of Sociology 83:340-63.Oliver, Christine. 1991. Strategic Responses to Institutional Processes.Academy of Management Review

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China.International Journal of Project Management, Volume 18:307-316Scott, W. Richard. 1991.Institutions and Organizations. Thousand Oaks, CA:Sage.

Townley, Barbara. 2002. The role of competing rationalities in institutional change.Academy ofManagement Review. 45: 163-79

Zucker, Lynne G. 1977. The Role of Institutionalization in Cultural Persistance. American SociologicalReview 42:726-43.

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